Eonia Swap
Definition
The Eonia swap is a special type of
Compound Swap.In an Eonia swap, fixed interest rates are swapped against variable interest rates. This is based on Eonia overnight money fixing (EURO Over-Night Index Average).
A daily interest rate adjustment takes place. The rate adjustment over the weekend is calculated according to the same base amount and interest rate as the Friday payment. The daily interest rates are accurate to two decimal places (for example, 3.25%). The interest is capitalized and paid out once at the end of the term.
An interest rate average rounded to 4 decimal places forms the basis for calculating the interest to be paid at the end of term. A difference therefore exists between this method and the precise method of calculation at the end of the term.
In contrast to other swaps, the variable interest is not paid daily. Instead, it is paid once at the end of the term. You can give premature notice on the swap, however.
Terms can vary between 2 days and 12 months.
The last fixing occurs on the final day of the term, and resulting payments are thus made one day after the end of the term.
For further information see the documentation on the fundamentals of
Eonia Swaps.
Structure
Creating an Eonia swap
You create an Eonia swap in the same way as a compound swap. In addition, you need to make the following settings in the condition details:
Update
Rule: ‘Adjusted’
Frequency: ‘1 calendar day’
Days +/-: ‘1-‘
Due date
Due date: Second day of term
Business day: ‘Following working day’
Update
Rule: ‘Unadjusted’
Frequency: ‘0 calendar days’
Days +/-: ‘1-‘
Due date
Due date: 1 day after end of term
Business day: ‘No deferment’
Calculation
Calculation type: ‘with average interest rate’
Rounding unit: ‘0.0001000’
Rounding: ‘Up or down to nearest whole number’